Pensions and divorce

 After the family home, the pension is often the most valuable asset a divorcing couple can have. Therefore, you need to know what happens to it in the event of separation and divorce.

Who decides how the pension is shared? 

Since The Family Law Act 1995 and the Family Law (Divorce) Act 1996, courts are able to allocate pension rights between separating and divorcing couples in Ireland. No matter how amicable the separation is, you need a Court Order to divide pension rights. 

Oftentimes, pensions are neglected by couples who only focus on other assets such as the family home or furniture. However, you can apply for a Pension Adjustment Order “PAO”, when the relationship ends. 

How does it work? 

When applying for a PAO, as a spouse, you must provide details of your property and your income to the other spouse. Including information about any pension benefits. Then, the Court will assess all the information and may serve an order. This order, is called the PAO (Pension Adjustment Order). It can require the pension’s trustees to pay benefits to the other spouse. Plus, the PAO can require the other spouse to pay benefits to another family member.   

Does it apply to all pensions? 

In the divorce process, the PAO only applies to a certain type of pensions;

  • Personal Retirement Savings Accounts (PRSAs)
  • Occupational Pension Schemes, which are pensions provided by your employer. This can apply to a current pension scheme or a pension scheme of which you were formerly a member.
  • Additional Voluntary Contributions (AVCs).
  • Personal Retirement Savings Accounts (PRSAs).
  • Retirement Annuity Contracts (RACs) including Trust RACs.
  • Buy out Bonds/Personal Retirement Bonds.

If you happen to have different pension arrangements, you are required to have a separate PAO for each one of them. However, benefits accumulated under the Social Welfare Act and disability benefits are not included. 

How much will I get? 

Two main factors are important to the court; The  “relevant period” and the “relevant percentage”. The relevant period refers to the fact that benefits accumulated after separation can’t be shared. Also you will have the option to exchange another asset, instead of keeping the current pension’s benefits. 

For instance, a PAO may be presented as follows:

  • The period of measurable service over which the designated benefit is deemed to have accrued is the period commencing on 1st January 2009 and ending on 1st January 2020.
  • The relevant percentage of the Retirement Benefits accrued over the Designated Period and to be paid to the Beneficiary is 50%.

Here, the spouse, who is not part of the pension scheme, will get 50% of the benefit which the member earned from 2009 to 2020. The calculation depends on whether the pension is defined as a benefit or a contribution. In either case, a transfer value will be offered to the spouse receiving the PAO. The receiving spouse could also set up an independent benefit within the member’s pension scheme.

What happens when the pension scheme member retires? 

If the pension member spouse retires and the spouse who benefited from the PAO has not transferred their benefit to another pension or has not set up an independent benefit, the non-member spouse must also take their retirement benefits.

They cannot remain in their former partner’s pension scheme independently after their former partner retires. Remember that taking retirement benefits can be considered a separate act to ‘retiring’ and finishing your working life.

A PAO must also be considered at retirement in relation to Standard Fund Thresholds and Tax-Free Lump Sum payments.

Standard Fund Thresholds: When calculating a member’s threshold limit (currently €2 million), the member’s entitlement is calculated as the total value they would have received if a PAO was never made. If this calculation puts the member over the Threshold, the chargeable excess tax liability is divided between the member and the non-member spouse on a pro-rata basis.

Tax-free lump sum: Subject to Revenue regulations, there are formulas for calculating the lump payable to a member on retirement. Currently, up to €200,000 of this lump sum can be paid tax-free. Where a PAO exists, there is a separate €200,000 limit for the member spouse and the non-member spouse.

How can we help? 

If you are going through a separation or a divorce, our financial advisors can help. Call 01 853 2727 or contact us here, we will assess your situation and give you personalized advice. If you want to know more about pension click here

 

 

 

Greenway Financial Advisors Limited is regulated by the Central Bank of Ireland. Registered No. C168372

Debbie Cheevers

Debbie Cheevers

Qualified Financial Advisor

Debbie was born in Dublin and graduated from NCAD with a degree in Visual Communication. She brings a strong customer services background to Greenway.

Debbie qualified as APA in 2017 and a fully qualified financial advisor (QFA) in 2018.

She believes that product knowledge is key to helping customers make the right choices.